How to Report Distributions From a Master Limited Partnership

by John Csiszar, Demand Media

A master limited partnership, or MLP, is a special type of investment that typically pays a high dividend rate. MLPs may also offer tax benefits. In addition to paying out taxable income, MLPs often make nontaxable return of principal distributions. As a result, the overall tax rate on MLP distributions can end up being quite low. Buying a master limited partnership could offer a way for your small business to earn additional investment income with lower taxes. At year's end, you receive a K-1 showing the amount of MLP income you have to report on your taxes.

Step 1

Collect your K-1 forms. You receive a K-1 for each MLP that you invest in, so you should know how many K-1's to expect before you file your taxes. Although companies typically send out K-1's by the end of February, these forms can be complicated documents and therefore may arrive later. Be aware of how many K-1's you're due and follow up with any MLPs that haven't sent you a K-1 by the beginning of March.

Step 2

Obtain a copy of the IRS K-1 reporting instructions. This is usually on the back of the K-1 you receive from the MLP, but you can also get a copy from the IRS website.

Transfer interest income to your Form 1040. Your MLP reports any interest income on Line 5a of your K-1, which you should report on Line 8a of your Form 1040.

Step 4

Transfer ordinary and qualified dividends to your Form 1040. Lines 6a and 6b of your K-1 list your ordinary and qualified dividend distributions from your MLP. Transfer those figures to Lines 9a and 9b of your Form 1040, respectively.

Step 5

Transfer any royalty payments. If your MLP paid you a royalty distribution, transfer the amount from Line 7 of your K-1 to Line 4 of Schedule E of your Form 1040.

Step 6

Consult the MLP for any Line 19 distributions. Irregular distributions are rare but may appear on Line 19 of your K-1. Consult with the general partner of your MLP to determine how to report these distributions.

Step 7

Report your other data as required. In addition to your distribution information, your K-1 may reflect other items that you must report, such as gains or losses. For each entry, follow the IRS instructions for how to transfer the MLP information to your Form 1040.

Tip

Certain K-1's are simple, listing only a few income and gain or loss items, while others are extremely complex. In each case, you may be able to follow the IRS instructions to properly report your K-1 distributions, but you may want to consider hiring a tax professional for more complicated K-1's.

About the Author

After receiving a Bachelor of Arts in English from UCLA, John Csiszar earned a Certified Financial Planner designation and served 18 years as an investment adviser. Csiszar has served as a technical writer for various financial firms and has extensive experience writing for online publications.

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